Personal Finance, as a whole, has several “Chicken and Egg” type debates. Roth vs. Traditional IRA, Big Wins vs. Small Wins, Renting or Buying a house. However, the truth is, these arguments are often debating the wrong thing. The important thing is Choice.The fact is, we make choices hundreds of times a day, and we make choices that impact our finances at least a dozen times a day. Click To Tweet
Think about your typical day. When you wake up, you have a choice. Do I begin the day with a coffee at home, or a Starbucks Supreme Frappa Whatever. The difference is small, maybe five dollars. But that five dollars represents an endless amount of choices. You can buy the Starbucks coffee. Or, instead you could put the money into a savings account. Or you could invest that money with an app like Acorns or Stash. You could buy a personal finance book on Amazon or Ibooks! Maybe you could give the money to someone less fortunate, and pay it forward. Your resources are limited, but your choices never are.
The Iron Price
In the Game of Thrones series, there is a concept called “Paying the Iron Price”. When Theon Greyjoy, a young ward of the Stark family, returns to his island home, he confronts his father. Their culture is very similar to medieval Vikings, and they live on a harsh island where little grows. During their conversation, Theon’s father Balon notices a golden necklace around his son’s neck and asks him, “Did you pay the Iron Price or the Gold?” The gold price is money; paying a merchant or storeowner money for something. However, the Iron Price is paid by taking what you want, by force.
Of course, I am not suggesting such a draconian action as taking everything you want by force. (Even though financial independence is only one bank robbery away!). What I am saying is that there is a price that we pay for convenience: The Gold Price. We pay the gold price when we buy goods on credit, or start our day at Starbucks, or buy more house than we need. After all, taking on debt is easy. Paying people for things you would rather not do is easy. What’s hard is paying for a car in cash; bringing lunch to work everyday, or making do with the house you have, until you can legitimately afford more.
We think that when we make a transaction, that we are just buying a good with bits of green paper, small metal objects, or with the swipe of a card. What we are really paying with are little bits of our life; hours, minutes, and seconds. Every dollar that is spent must be earned back, before we break even. When you drive to work and stop at Starbucks before you begin your day, you are already starting in the red. How long do you have to work before you make your money back? And don’t forget, while you are working, you still must pay for the utilities, your rent or mortgage, and your car note. When exactly in the day do you start making money?
For some of us, the answer is more depressing that we realize. And the more we pay the Gold Price, the longer we must work before we earn even one dollar for ourselves. According to the Pew Charitable Trusts, the median household has a yearly surplus of income over expenditures of $5,944 in 2014. This was with a median income, according to census.gov, of $53,657. With most households having two income earners (60% according to Pew Charitable Trusts), we will assume that both spouses work full-time.
With a full-time employee working 2,080 hours, this means that our average family spends 4,160 hours working in a year. However, when one considers that the average commute is nearly 30 minutes either way (1 hour total), and the lunch hour usually prevents you from doing anything fun or productive (1 additional hour), we must add 2 hours a working day, for each parent. That turns our 4,160 hours into 5,200 hours (2 hour * 2 spouses * 260 days working). That means that every hour working, or spent in work-related activities, earns our Average American $1.14, that they actually keep for themselves. Knowing that, perhaps we should value each $5 transaction a little more.
And high-income earners aren’t immune. With upward pressure on hours spent at the office, high-income earners are spending more and more time away from home, which means that more often then not, they will choose the option that costs money and saves time, at nearly any price. But its a treadmill that you don’t ever get off.
How do we avoid paying the Gold Price?
Let’s say that for example, you are the typical professional, working more than 50 hours a week. So, when you have time at the house on the weekend, you want to focus on spending time with the kids, maybe relaxing and watching tv. You all bundle up indoors, but then disaster strikes. You look outside, and see a jungle. You forgot to mow the grass last week, and you are at risk of the neighbor starting your lawn mower for you, and leaving it in the front yard. So, you’ve got three options.
1.) Say YOLO, and let the grass keep growing. Challenge the grass, and call out its manhood, defying it to grow taller than the dog. You are the master and commander of your home, and by sheer force of will, you are going to keep the grass from growing any taller. Perhaps you’ll threaten it by cutting off its water supply, and hope that the front yard won’t look like the Sahara Desert next week.
2.) Bow to the inevitable, and call the yard guy. For the humble price of $100, let him sweat and toil, while you live inside like a king amongst mere mortals. After all, you deserve to enjoy your time off, and mowing the grass sounds like the weekend equivalent of Alcatraz.
3.) Get your lazy butt outside and mow the grass.
A lot of professionals I know take option 2. Pay the Iron Price. Take option 3.
What about you? Have you ever paid the Gold Price? What do you insource to pay the “Iron Price” that saves you money?